ELECTROAPARATAJ S.A. ANNUAL REPORT of the BOARD OF DIRECTORS for 2016 financial year

Transcription

1 ELECTROAPARATAJ S.A. ANNUAL REPORT of the BOARD OF DIRECTORS for 2016 financial year o Annual report according to: CNVM Regulation no. 1/2006 o For financial year: 2016 o Report date: February 28, 2016 o Company name: o Registered office: o Fiscal residence ELECTROAPARATAJ S.A. 121(C7) Calea Campulung, Targoviste, Dambovita County BUCHAREST, 104A, Timisoara Bd., district 6, zip code o Telephone/fax number: : / o Trade Register office number and registration date: o Taxpayer identification number: J15/80/ , fiscal attribute RO o Regulated market on which the issued securities are traded: Bucharest Stock Exchange o Subscribed and paid share capital: RON 4,667,689 o Main characteristics of the securities issued by the company: o Nominative shares, issued in dematerialized form shown by registrations in the account: 46,676,890 shares with a nominal value of RON 0.1 / share. o Total market value of the shares: 46,676,890 shares x RON 0.10 / share = RON 4,667,689 o The company did not issue any other securities 1. COMPANY ACTIVITY ANALYSIS a) Description of the company s main activity. The scope of the activity of S.C.ELECTROAPARATAJ S.A. was the same in 2016 as the one stipulated in the company s Articles of Incorporation, «Manufacture of electricity distribution and control apparatus» - NACE code The main activity of S.C.ELECTROAPARATAJ S.A. is the design, manufacture and sale of low-voltage electrical equipment. S.C. ELECTROAPARATAJ S.A. also provides services in the following fields: applied research activities, electrical item repairs, electrical equipment testing and analysis, etc. In the following period, there are no prospects of any significant changes regarding the field of activity of S.C.ELECTROAPARATAJ S.A., which will continue to focus on its core business, namely the manufacturing of low-voltage electrical equipment primarily for industrial use.

2 b) SC ELECTROAPARATAJ S.A. was incorporated in 1990 (G.R. 1327/ ), through the reformation of the state-owned ELECTROAPARATAJ incorporated in During , the company was fully owned by the state. Following the mass privatization program, in % of the share capital of ELECTROAPARATAJ S.A. was privatized through coupons and certificates, as this was the first stage in the privatization of the company. The second stage took place in 1997, when the State Property Fund sold in a public bidding the shares representing the remaining capital it still owned, and currently ELECTROAPARATAJ S.A. is a fully privatized company. c) In 2011 ELECTROAPARATAJ S.A. purchased 1 share from SC UMEB TRADING SRL and contributed to the increase of the share capital at SC ELJ PRELUCRARI METALE from RON 700 to RON 127,280 through an in-kind capital contribution. On December 31, 2012, Electroaparataj SA no longer owned short-term financial investments. On December 31, 2016, SC Electroaparataj SA held the following interests: Number of shares owned by ELJ % of the share capital COMPANY NAME ASOCIATIA ACTIONARILOR din ROMANIA BIL INVESTITII 276, FUNDATIA NCH LEARNING CENTER ( interests ) 4, ELJ PIESE TURNATE ELJ SISTEME SI APARATE ELECTRICE ELJ MENTENANTA TITU SOCIETATEA COMERCIALA LUCRARI DE SUDURA LINII DE CAI FERATE SUDAREC 14 0 ARHIVARE DOCUMENTE UMEB TRADING 1 5 The parent company that draws up the consolidated financial statements is SC ELECTROAPARATAJ SA. The headquarters of the company can provide copies of the consolidated financial statements. Between its affiliates, commodities were purchased and sold / services were provided The value of the transactions with affiliates parties in 2016 is detailed as follows: Sales to affiliated parties (value without VAT) = RON 1,310,092 Purchases from affiliated parties (value without VAT) = RON 3,633, General assessment a) 2016 concluded with a net profit of RON 1,421,126, which represents a positive result compared to 2015, when the net profit was RON 373,440. b) The turnover in 2016 of RON 16,299,073 increased compared to 2015, when it was RON 13,152,408. These positive aspects were mainly due to an increase in the number of client orders and a decrease in expenses, especially in fixed expenses. The turnover is detailed by activity segments and geographical markets as follows:

3 TURNOVER STRUCTURE by Business Lines 2016 Sales of finished products - EXPORT 14,132,373 Sales of finished products INTERNAL 463,418 Sales of commodities INTERNAL 1,233,978 Sales of residual products, various 395,330 Various revenues 73,974 16,299,073 c) In 2016 exports represented % of the turnover. d) At the end of 2016, the equivalent value in RON and in foreign currency of the company liquidities was RON 1,379,604, compared to 2015, when it was RON 1,444,510 The general liquidity at the end of 2016 was 5.75 and the immediate liquidity was e) The inventory increased by 30.42% overall. The inventory of raw materials and materials increased by 60%, and the inventory of finished products remained constant. f) The trade receivables of the company remained constant, and increased only by 0.66%, compared to the end of g) The short-term debts increased in 2016 by 45.40%, compared to 2015, an increase also generated by the increase of the inventory Assessing the company s technical level The main products manufactured by S.C.ELECTROAPARATAJ S.A. are: - Low-voltage electrical equipment devices for industrial use (contactors, thermal relays, relay contactors, miniature automatic switches, open and capsulated automatic switches, etc.); - Electrical devices for installations (switches, jacks, sockets, multiple sockets, extensions, electrical cable unrolling devices, instrument boards for apartments, etc.); - Light metallic structures In the reporting period, 13.29% of the S.C.ELECTROAPARATAJ S.A. products were sold on the internal market and 86.71% were meant for export. On the internal market, the client portfolio of ELECTROAPARATAJ S.A. comprises approximately 68 companies, out of which the first 20 clients represent 97% of internal sales. The most important external markets are Norway, Sweden, France, Bulgaria and Croatia / Germany occasionally. National distribution is made both directly, and through specialized resellers. Exports are made mostly directly, and brokerage is used only in case of offers which can develop segments or markets which are more difficult to access by S.C.ELECTROAPARATAJ S.A. In 2016, the process of improving the quality of the products and processes continued, and Electroaparataj SA extended both the ISO TS certification corresponding to the manufacture of vehicles and accessories, a core condition for business development in this field, and the certifications received from its main clients. The process of modernizing the products at European standards also continued, and at the end of 2016 over 90% of the products of Electroaparataj SA were EC certified Main suppliers of raw materials and used materials: In order to perform its main activity, S.C.ELECTROAPARATAJ S.A. receives several materials and raw materials specific to the electrical engineering field, and the main suppliers are shown in the table below:

4 No. Company Material name 1 ALTEK DOKUM HADDE MAMULLERI SAN VE TIC LTD STI Total Purchase value 2016 % from total purchases Copper sheets 1,728, % 2 ELJ AUTOMOTIVE Total Plastic parts ABB +Internal 1,252, % 3 ROMLUX LIGHTING COMPANY Total Service provision 1,218, % 4 LAROMET METAL Total Non-ferrous laminated products 1,199, % 5 SAFINA ROM SRL Total Silver anodes ABB 1,164, % 6 ABB AS Semi-products 1,142, % 7 UMEB Total Plastic parts ABB +Internal 1,125, % 8 TE CONNECTIVITY SOLUTIONS GmbH Total Plastic parts ABB 922, % 9 BASF SE Total Plastics ABB 474, % 10 BAMESA OTEL Total Zinc-coated sheets 452, % 11 VAMP-TECH spa Total Service provision 393, % 12 POLYNT SPA SOCIO UNICO Total Plastic parts ABB 314, % 13 EWES STALFJADER AB Total Special arches ABB 176, % 14 ENGIE ROMANIA Total Utilities 154, % 15 SODEXO PASS ROMANIA Total Service provision 133, % 16 BROADHURST INDUSTRIAL MANAGEMENT Total Service provision 120, % 17 OMV PETROM MARKETING Total Fuel 79, % 18 RAINBOW MARKETING & CONSULTING Total Marketing advertising 66, % 19 COLOR METAL SRL Total Copper sheets, cut plates 52, % 20 INDUSTRIALCHIM Total Chemical materials 41, % 21 KLG EUROPE LOGISTICS Total International transportation 18, % 22 TOTAL PURCHASES ,928, % National production covers approximately 62% of the necessary raw materials and materials, and the remaining 38% purchases were imports The behavior of Romanian manufacturers that compete with S.C.Electroaparataj S.A. is not excessively aggressive, and the circumstances are as follows: - S.C.Electroaparataj S.A. is the only Romanian manufacturer of low-voltage electrical equipment for industrial use to provides a complete range of products. Nevertheless, it covers only 5 10% of the internal market; - In the field of installation equipment, the most important competitors on the internal market are: SIEMENS, ELMARK Group, EATON Electric, ABB, - On the external market, the competitors are LINASET CEHIA, companies based in UKRAINE for metallic structures, and companies based in Bulgaria for electrical components, and these are becoming more and more aggressive. Chinese products are becoming more and more competitive. The market for the products of S.C.ELECTROAPARATAJ S.A is characterized by a significant dependency on the ABB Group Assessment of human resources aspects The budgeted average number of the company employees on December 31, 2016 was 88. Their distribution by categories is: No. of employees Total salary costs MANAGEMENT & MIDDLE MANAGEMENT 8 240,514 EMPLOYEES DIRECTLY INVOLVED IN THE 55 MANUFACTURING PROCESS 773,009 EMPLOYEES INDIRECTLY INVOLVED IN THE 13 MANUFACTURING PROCESS 318,502 TESA EMPLOYEES , ,760,415

5 Two unions operate within the company: the Electroaparataj Independent Free Union and the Solidarity Union within SC Electroaparataj SA, the Targoviste Branch. There have been no conflicts between the managers and the employees. No events that would affect the liquidity of the company occurred during the reporting period, nor are there any such events likely to occur in the future Environmental impact The company operates based on an ISO 14001/1997 environmental management system. Due to its specificity, the only activity likely to affect the environment is the coating activity (galvanization, phosphating, painting). The company has modernized the neutralization station according to legal requirements, and contracted the periodical analysis of waste water and air, to ensure the compliance with all the environment requirements in force. No dispute regarding the compliance with the environment legislation, nor is there any dispute likely to arise in the future Assessment of the research & development activity The expenses in the research & development field represented 0.1% of the turnover Assessment of the company s risk management activities Electroaparataj SA operates on several market segments subject to various constraints: - External market incurs currency risk. Electroaparataj implements a natural hedging policy, increasing the import supply rate to mitigate this risk. However, as salaries and utilities expenses are expressed in RON, their increase affects the profitability of the company. - In 2016, autonomous financing and avoiding financial blockages was only possible by increasing the efficiency of the working capital and ensuring a balance between collections and payments Long-term prospects for the company activity In 2016, the turnover of RON 16,299,073 increased by 24.87% compared to 2015, when it was RON 13,052,408. The budgeted turnover for 2017, higher than in 2016, was based on estimated orders received from its main clients. The sales of the company will be positively influenced also due to the extension of the range and order volumes for new products from one of its major clients, namely ABB Norway, through its Bulgarian plant. 2. TANGIBLE COMPANY ASSETS 2.1. To carry out its main activity (described under section 1.1.a), the company has production facilities located in Bucharest location 44 Timisoara Bd. and Targoviste 121 Calea Campulung A significant part of the company machinery and equipment was purchased between , which means that their wear and tear is around 65%. The wear and tear varies; in some sectors it is higher (the Mechanical Processing sector), while in others it is lower, due to machinery renewal through the purchase of new machinery between , and , respectively (Warehouses sector, Transportation sector, Galvanization sector, Painting, Metallic Structures) The buildings and some of the fittings are not owned by the company. No dispute regarding the ownership over the company assets. 3. MARKET OF THE SECURITIES ISSUED BY THE COMPANY

6 3.1. The shares of S.C.Electroaparataj S.A. are negotiated starting with 1997 at the Bucharest Stock Exchange. Following successive divisions, the company s right to trade was suspended in October Trading was resumed in The shareholding structure as of December 31, 2016 is shown in the annexed table. 4. COMPANY MANAGEMENT As of January 01, 2016, the company is managed by a Board of Directors with the following members: No. Name Since: Qualification / Experience Position 1 SC BROADHURST INDUSTRIAL MANAGEMENT SRL by permanent representative Mr. Adrian Ioan RUS 2003 MBA/Engineer Chairman 2 ADITEK TECHNOLOGY Member SRL by Mr. Adrian PREDA 3 TWEEN ENGINEERING Member PREVIEW by Mr. Dan MACANEATA There are no agreements, understandings or family ties between the company managers, nor are there any other persons that could have influenced the appointment of the directors. There were no transactions concluded between the company managers and S.C. Electroaparataj S.A. in The executive managers of the company in 2016 were as follows: No. Name Position Period 1 Gheorghe Chitu General Manager Irimia Lucian Financial Manager Nicu Doina Quality-Environment Manager BIM Antoniu Alexandrescu Design and Research Manager Tunsoiu Cristina Executive Manager Targoviste Business Unit All the executive managers were appointed for unlimited periods. There are no agreements, understandings or family ties between the executive managers of S.C.Electroaparataj S.A. nor are there any other persons that could have influenced the appointment of the directors. Executive managers participation in the share capital of the company: NA During the last five years, no disputes or administrative procedures involving the managers or the executive managers of S.C.Electroaparataj S.A. took place. 5. FINANCIAL-ACCOUNTING ANALYSIS IFRS general framework SC ELECTROAPARATAJ SA applies the International Financial Reporting Standards, hereinafter referred to as IFRS, and their accompanying interpretations and norms issued by the International Accounting Standards Board (IASB) They are the standards implemented according to the procedure provided by (EC) Regulation no. 1606/2002 of the European Parliament and of Council of July 19, 2002 on the application of international accounting standards. Legal framework The annual financial statements drawn up according to IFRS are exclusively meant to be used by the said entities, their shareholders and CNVM.

7 OMPF no. 2844/2016 for the approval of the Accounting Regulations according to the International Financial Reporting Standards. The table below shows the main financial-accounting data of financial year 2016, compared to 2015: A. CONSOLIDATED FINANCIAL POSITION STATEMENT FOR THE FINANCIAL YEAR CONCLUDED ON DECEMBER 31, 2016 Notes FINANCIAL YEAR 2015 FINANCIAL YEAR 2016 RON RON 1) Intangible assets ) Tangible assets 14 1,606,615 1,341,576 3) Financial assets (excluding the values from sections (5), (6) and (7)) 13 44,397 44,397 Total assets 1,651,012 1,385,973 4) Inventory, net value 19 7,338,481 9,570,722 5) Trade receivables and other similar receivables 10 5,259,586 5,597,396 6) Cash and cash equivalents 21 1,444,510 1,379,604 8) Other short-term investments 21 19, ) Deferred receivables and expenses, net value 20 45,892 4,826 Total circulating assets 14,108,412 16,552,612 TOTAL ASSETS 15,759,424 17,938,585 10) Trade debts and other similar debts 18 2,473,460 3,345,880 11) Deferred provisions and revenues , ,531 12) Receivables related to the deferred tax, according to IAS 12 "Income tax" TOTAL DEBTS 2,761,991 3,634,411 13) Share capital 26 4,667,689 4,667,689 14) Capital premium 3,520,071 3,520,071 15) Reassessment reserves 3,430,621 3,430,621 16) Other reserves 18,844,478 18,844,478 17) Bills of transfers to capital holders 1,003,079 1,003,079 18) Carried forward loss 16,835,787 16,576,732 19) Current financial year result 373,440 1,421,126 Equity assignable to parent company owners 12,997,433 14,304,174 TOTAL EQUITY 12,997,433 14,304,174 TOTAL DEBTS AND EQUITY 15,759,424 17,938,585

8 B / COMPREHENSIVE INCOME STATEMENT FOR THE FINANCIAL YEAR CONCLUDED ON DECEMBER 31, 2016 FINANCIAL FINANCIAL Notes YEAR 2015 YEAR 2016 RON RON 1) Revenues 2) Other revenues 13,152,408 16,299, , ,778 3) Variation in the inventory of finished products and production in progress ( + / - ) -107, ,825 TOTAL REVENUES 13,918,987 17,126,676 4) Used raw materials and consumables -8,018,094-9,896,974 5) Amortization and depreciation expenses -450, ,267 6) Salary and social tax expenses -2,290,613-1,760,415 7) Financial costs -94, ,841 8) Other expenses -2,591,253-3,362,069 TOTAL EXPENSES -13,444,843-15,444,566 PROFIT / LOSS before TAX (GROSS) 526, ,144 9) Current income tax 100, ,984 PROFIT / LOSS FOR THE REPORTING PERIOD 373,440 1,421, CASH FLOW Liquidities at the beginning of the period 1,055,572 1,345,165 1,444, from operational activities 512, ,727-64, from financing activities -222,468-4, net cash flow ,593 99,345-64,906 Liquidities at the end of the period 1,345,165 1,444,510 1,379,604 These are the main economic-financial indicators: I. Liquidity indicators 1. Current liquidity (times) Immediate liquidity (times) II. Activity indicators 1. Inventory turnover rate (no. of turnovers) No. of storage days (days) Client turnover rate (days) Supplier turnover rate (days) Asset turnover rate (no. of turnovers) Total asset turnover rate (no. of turnovers) III. Profitability indicators

9 1. Gross margin from sales (%) 14.02% 15.35% 23.53% 6. Corporate governance statement 6.1 Electroaparataj SA has shares listed on the Bucharest Stock Exchange. Consequently, Electroaparataj SA applies all the legal provisions in force regarding corporate governance Law 31/1990 amended, Order no / 2012 for the approval of the accounting regulations according to the International Financial Reporting Standards, applicable to the companies whose securities are allowed for trading on a regulated market, CNVM Regulation 1/2006 on reporting, Bucharest Stock Exchange regulations, etc. All these documents are public. The managers of Electroaparataj SA state that there were no situations where the company deviated from the corporate governance code, which is not applicable for the company under the current conditions. The company manages its accounting records according to the laws in force and uses a highlevel integrated computer system that stores all transactions. There are persons specifically assigned and qualified in charge of drafting financial reports, by complying with the accounting policies legally approved by the company. Financial reports are checked and approved by the Financial Manager, the General Manager and, where applicable, by the Board of Directors. The company has contracted an authorized financial auditor, according to legal requirements. The financial auditor checks the financial reports in all situations provided by the legislation in force. The auditors fee is EUR 3,600 without VAT. The General Meeting has the attributions provided by Law 31/1990, as amended, and the company s Articles of Incorporation in force when the said general meeting was held When carrying out its activity and reporting to the supervision institutions of the regulated market, Electroaparataj does not deviate from the corporate governance code, which is not applicable for the company under the current conditions. Also, Electroaparataj SA is not subject to any public takeover offer Description of the main characteristics of the internal audit and risk management systems, in relation to the financial reporting process In Electroaparataj, the internal audit and risk control is the process of: Identifying and assessing potential events which may affect the entity, so that the managers would be able to ascertain the manner in which such risks should be managed, given alternative scenarios, including under crisis conditions; Deciding on fully accepting these risks without other actions, of transferring them through insurance or the degree to which they wish to mitigate them through control procedures; Implementing the decision and monitoring the risk evolution 1. Risks are events that can affect the achievement of the organization objectives and are classified in 5 risk classes: Reputation risks affect the public image Financial risks affect the financial situation Strategic risks affect the objectives of the unit Operational risks affect the organizational processes Legal risks affect the legal situation of the organization 2. Risks can operate individually or together, they can generate immediate or over time effects, and event categories can be grouped based on internal and external factors. Risk level = probability that the event would occur X impact value (RON). 3. The risk control within the organization has 8 interdependent components, integrated in the business management processes. These components are as follows: 3.1. Organizational culture Setting objectives Event identification Risk management Risk reaction Activity control.

10 3.7. IT system and communications Monitoring. The risk control process is monitored to ensure the presence and operation of its components, and their performance, at the same time. 4. In the risk management field, managers are responsible at the least for the following aspects: 4.1.Managing policies and procedures in order to identify, assess, monitor and control risks and the personnel involved in their application; 4.2.Knowing and monitoring the main risks of the organization; 4.3.Creating the organizational framework, setting responsibilities and allocating the necessary resources; 4.4.Maintaining adequate risk exposure reporting systems, and other risk-related aspects; 4.5.Maintaining risk exposure, including during crises, under the limits approved by the Board of Directors; 4.6.Maintaining the efficiency and efficacy of the internal audit system; 4.7.Providing qualified personnel, with the necessary experience and know-how; 4.8.Ensuring the compliance of the personnel remuneration policies with the risk strategy. 5. Controllers shall participate in setting the risk profile, the risk types that the organization is prepared to undertake, and the threshold from which a risk is considered significant, considering the nature, size and complexity of the activity. 6. The decisions regarding the management of significant risks, related to the nature, size and complexity of the organization activities must be transposed, clearly and transparently, into internal norms and procedures, including manuals and conduct codes, by differentiating between general standards that are applicable to all employees and specific rules that are applicable to certain personnel categories. 7. The controller must ensure, with the internal auditor, the systematic monitoring of the compliance with the procedures set for the significant risks and the resolution of the identified deficiencies General Meeting of the Shareholders organization and key attributions. Shareholder rights and implementation methods. The General Meeting of the Shareholders is convened by the Chairman of the Board of Directors. Ordinary general meetings take place at least once a year, within four months of the end of the financial year, in order to examine the annual financial statements for the previous year and decide on the activity schedule and the revenue and expense budget for the current year. The managers may convene an ordinary or, as the case may be, an extraordinary general meeting whenever necessary, in order to pass resolutions that fall within the competence of the general meeting. The managers must convene an ordinary or, as the case may be, an extraordinary general meeting upon the request of the shareholders that represent at least 10% of the share capital, if the said matters fall within the competence of the general meeting. The ordinary or extraordinary general meeting is convened by publishing the meeting notice in the Official Gazette of Romania, part IV, and in a widespread newspaper from the city where the registered office of the company is located. The meeting notice includes the place, date and agenda of the general meeting, and it explicitly indicates all the matters to be discussed. According to the articles of incorporation, the general meeting is convened at the company headquarters or at another location indicated in the meeting notice. The meeting cannot discuss matters that have not been identified or included in the agenda notified to the shareholders, under the sanction of the resolution nullity, unless the law expressly provides otherwise. When the agenda includes proposals for amending the Articles of Incorporation, the meeting notice must include the full text of the proposals. Shareholders may attend the general meeting in person, through a legal representative or by proxy. Shareholders may be represented in the general meeting by persons other than shareholders, based on a special power of attorney. An ordinary general meeting is validly convened and can pass resolutions upon the first summons if the shareholders or their representatives that hold at least half of the share capital are present, and resolutions can be passed with the votes of a number of shareholders that have the absolute majority of the share capital represented in the general meeting.

11 An ordinary general meeting is validly convened and can pass resolutions at the second summons irrespective of the capital percentage represented by the shareholders present, by majority rule. An extraordinary general meeting is validly convened and can pass resolutions at the first summons in the presence of shareholders or their representatives that hold at least three quarters of the share capital, and resolutions can be passed with the votes of a number of shareholders that represent at least half of the share capital. An extraordinary general meeting is validly convened at the second summons in the presence of shareholders or their representatives that hold at least half of the share capital, and resolutions can be passed with the votes of a number of shareholders representing at least a third of the share capital. The general meeting of shareholders is presided by the Chairman of the Board of Directors or by another person appointed by the latter. The general meeting appoints, out of the present shareholders, one to three secretaries who shall check the shareholders attendance list by indicating the share capital represented by each shareholder and the fulfillment of all the formalities required by the law and the Articles of Incorporation for the general meeting. The minutes of the general meeting are signed by the person who presided the meeting and the secretaries. The documents regarding the meeting notice and the shareholders attendance list shall be enclosed to the minutes of the general meeting. According to the provisions of Law 31/1990, the ordinary general meeting of the shareholders of ELECTROAPARATAJ has the following attributions: a) elects the company managers and establishes their remuneration; b) decides on the managers administration, discharges them from administration and revokes them; c) examines, approves or amends the annual financial statements, after analyzing the management report and the audit report, and decides on the distribution of profits; d) approves the revenue and expense budget and, as the case may be, the activity schedule for the following financial year. The extraordinary general meeting of shareholders passes resolutions on: a) changing the company s legal form; b) moving the company s registered office; c) changing the company s main activity; d) increasing the share capital; e) decreasing the share capital or supplementing it by issuing new shares; f) merging with other companies or dissolving the company; g) converting shares from one category to another; h) converting one category of bonds into another category or into shares; i) issuing bonds; j) any other amendment of the Articles of Incorporation and other situations for which the approval of the extraordinary general meeting of shareholders is necessary. Through the company s Articles of Incorporation, the attributions of the extraordinary general meeting of shareholders provided under sections b), c), d), e) and g) above are delegated to the Board of Directors. The voting rights shall be exercised at general meetings by the shareholders or their representatives. The resolutions of the general meeting shall be passed by exercising the shareholders voting rights, proportional to the number of shares owned, based on the share class. The shareholders can vote only in a unanimous manner, corresponding to the total number of shares they own, without dividing the number of votes. The resolutions of the general meeting of shareholders shall be adopted in an open ballot. Shareholders usually vote by raising their hands. Upon the proposal of a group of present or proxy shareholders that own at least 1/3 of the share capital, the participant can opt for a secret ballot. A secret ballot is mandatory when electing or revoking the members of the Board of Directors, and when passing resolutions regarding the managers liability. The shareholders of Electroaparataj SA have the rights stipulated in Law 31/1990 republished.

12 6.5. Structure and operation of the administration, management and supervision bodies According to the provisions of the Articles of Incorporation, Electroaparataj is managed by one to five managers, which constitute the Board of Directors. The mangers are appointed for four years and can perform all the operations necessary for carrying out the company activity, according to legal provisions and the articles of incorporation. The General Meeting of Shareholders convened for appointing the managers shall also determine the number of managers for the following mandate. The general meeting of shareholders may grant each company manager distinct powers for implementing set operations or activities. The managers are personally liable for the actions and operations performed on the basis of the special powers granted. The Chairman and Deputy Chairman of the Board of Directors are chosen by the Board of Directors from its members. The Chairman of the Board of Directors is entitled to represent the company in relations with third parties, by signing all the documents that bind the company before any third parties. The Chairman of the Board of Directors can transfer his/her power of representation, in full or for set operations, to the CEO of the company or to other persons based on a written power-of-attorney. Managers can be revoked at any time and without justification by the general meeting of shareholders. The performance of the company operations can be entrusted to one or several executive managers that are company employees, but cannot be members of the Board of Directors. The executive management of the company includes the CEO and the executive managers appointed by the Board of Directors, according to the approved organizational chart. Thee CEO of the company is vested by the Board of Directors with decision-making powers in organizing and managing the company activities, and can represent the company in its relations with third parties within the limit of the powers-of-attorneys granted by the Board of Directors. The financial auditor of the company must be a member of the Romanian Chamber of Financial Auditors, according to the national norms regarding the financial audit. The financial auditor checks and certifies the annual financial statements of the company. The internal audit activities shall be organized within the company, according to specific regulations. CHAIRMAN BOARD OF DIRECTORS, SC BROADHURST INDUSTRIAL MANAGEMENT SRL through permanent representative ADRIAN IOAN RUS

13 SC ELECTROAPARATAJ SA ANNEX 1 SHAREHOLDING STRUCTURE ON DECEMBER 31, 2016 NO. SHAREHOLDER COUNTRY NUMBER OF SHARES PERCENTAGE (%) 1 BROADHURST CYPRUS 25,818, % INVESTMENTS LTD 2 SC METEX BIG SA GALATI - 6,876, % 3 SHAREHOLDERS LEGAL 220, % ENTITIES 4 SHAREHOLDERS NATURAL - 13,761, % PERSONS 5 GRAND TOTAL - 46,676, CHAIRMAN BOARD OF DIRECTORS, SC BROADHURST INDUSTRIAL MANAGEMENT SRL through permanent representative ADRIAN IOAN RUS

14 ANNUAL REPORT of the BOARD OF DIRECTORS regarding the CONSOLIDATED FINANCIAL STATEMENTS as of December 31, 2016 o Annual report according to: CNVM Regulation no. 1/2006 o For financial year: 2016 o Report date: February 28, 2017 o Company name: o Registered office: o Fiscal residence ELECTROAPARATAJ S.A. 121(C7) Calea Campulung, Targoviste, Dambovita County BUCHAREST, 104A, Timisoara Bd., district 6, zip code o Telephone/fax number: : / o Trade Register office number and registration date: o Taxpayer Identification Number: J15/80/ , fiscal attribute RO o Regulated market on which the issued securities are traded: Bucharest Stock Exchange o Subscribed and paid share capital: RON 4,667,689 o Main characteristics of the securities issued by the company: o Nominative shares, issued in dematerialized form shown by registrations in the account: 46,676,890 shares with a nominal value of RON 0.1 / share. o Total market value of the shares: 46,676,890 shares x RON 0.10 / share = RON 4,667,689 o The company did not issue any other securities 1. COMPANY ACTIVITY ANALYSIS b) Description of the company s main activity. The scope of the activity of S.C.ELECTROAPARATAJ S.A. was the same in 2016 as the one stipulated in the company s Articles of Incorporation, «Manufacture of electricity distribution and control apparatus» - NACE code The main activity of S.C.ELECTROAPARATAJ S.A. is the design, manufacture and sale of low-voltage electrical equipment. S.C. ELECTROAPARATAJ S.A. also provides services in the following fields: applied research activities, electrical item repairs, electrical equipment testing and analysis, etc. In the following period, there are no prospects of any significant changes regarding the field of activity of S.C.ELECTROAPARATAJ S.A., which will continue to focus on its core business, namely the manufacturing of low-voltage electrical equipment primarily for industrial use. b) SC ELECTROAPARATAJ S.A. was incorporated in 1990 (G.R. 1327/ ), through the reformation of the state-owned ELECTROAPARATAJ incorporated in 1949.

15 During , the company was fully owned by the state. Following the mass privatization program, in % of the share capital of ELECTROAPARATAJ S.A. was privatized through coupons and certificates, as this was the first stage in the privatization of the company. The second stage took place in 1997, when the State Property Fund sold in a public bidding the shares representing the remaining capital it still owned, and currently ELECTROAPARATAJ S.A. is a fully privatized company. c) In 2011 ELECTROAPARATAJ S.A. purchased 1 share from SC UMEB TRADING SRL and contributed to the increase of the share capital at SC ELJ PRELUCRARI METALE from RON 700 to RON 127,280 through an in-kind capital contribution. On December 31, 2012, Electroaparataj SA no longer owned short-term financial investments. The parent company that draws up the consolidated financial statements is SC ELECTROAPARATAJ SA. The headquarters of the company can provide copies of the consolidated financial statements. Between its affiliates, commodities were purchased and sold / services were provided, namely between Electroaparataj and S.C. ARHIVARE DOCUMENTE S.R.L.. The value of the sales to the affiliates is detailed as follows: Sales of commodities to S.C. ARHIVARE DOCUMENTE S.R.L. (value without VAT) = RON 3,834 The value of the purchases from the affiliates is detailed as follows: Purchase of services from S.C. ARHIVARE DOCUMENTE S.R.L. (value without VAT) = RON 36,509 The shareholding structure in the companies which were subject to the consolidation perimeter of SC Electroaparataj SA on December 31, 2016 is as follows: 1 / S.C. ARHIVARE DOCUMENTE S.R.L. J15/247/ ; Taxpayer Identification Number S.C. Electroaparataj S.A. owns 19 shares, representing 95% of the share capital of the company; - Active International S.A. has 1 share, representing 5% of the share capital of the company; - Sole Administrator Broadhurst Industrial Management SRL In 2016, the company was operational, and consequently it was included in the consolidation perimeter General assessment a) The ELECTROAPARATAJ group of companies obtained in 2016 a gross consolidated profit of RON 1,468,734, a positive result compared to 2015, when a gross consolidated profit of RON 418,013 was reported b) The consolidated turnover in 2016 of RON 16,586,506 is divided into activity segments and geographical markets as follows: Sales of finished products - EXPORT 14,132,373 Sales of finished products INTERNAL 463,418 Sales of commodities INTERNAL 1,233,978 Sales of residual products, various 395,330 Various revenues 361,407 16,586,506 c) In 2016, exports represented % of the turnover. d) At the end of 2016, the company had available a total equivalent amount of RON 1,833,397; liquidities are held both in RON and in foreign currency. The general liquidity calculated at the end of 2016 is 5.85, and immediate liquidity is Assessing the company s technical level The main products manufactured by S.C.ELECTROAPARATAJ S.A. are:

16 - Low-voltage electrical equipment devices for industrial use (contactors, thermal relays, relay contactors, miniature automatic switches, open and capsulated automatic switches, etc.); - Electrical devices for installations (switches, jacks, sockets, multiple sockets, extensions, electrical cable unrolling devices, instrument boards for apartments, etc.); - Light metallic structures In the reporting period, 13.29% of the S.C.ELECTROAPARATAJ S.A. products were sold on the internal market and 86.71% were meant for export. On the internal market, the client portfolio of ELECTROAPARATAJ S.A. comprises approximately 68 companies, out of which the first 20 clients represent 97% of internal sales. The most important external markets are Norway, Sweden, France, Bulgaria and Croatia / Germany occasionally. National distribution is made both directly, and through specialized resellers. Exports are made mostly directly, and brokerage is used only in case of offers which can develop segments or markets which are more difficult to access by S.C.ELECTROAPARATAJ S.A. In 2016, the process of improving the quality of the products and processes continued, and Electroaparataj SA extended both the ISO TS certification corresponding to the manufacture of vehicles and accessories, a core condition for business development in this field, and the certifications received from its main clients. The process of modernizing the products at European standards also continued, and at the end of 2016 over 90% of the products of Electroaparataj SA were EC certified Main suppliers of raw materials and used materials: In order to perform its main activity, S.C.ELECTROAPARATAJ S.A. receives several materials and raw materials specific to the electrical engineering field, and the main suppliers are shown in the table below: No. Company Materials 1 ALTEK DOKUM HADDE MAMULLERI SAN VE TIC LTD STI Total Purchase value in 2016 % from total purchases Copper sheets 1,728, % 2 ELJ AUTOMOTIVE Total Plastic parts ABB +Internal 1,252, % 3 ROMLUX LIGHTING COMPANY Total Service provision 1,218, % 4 LAROMET METAL Total Non-ferrous laminated products 1,199, % 5 SAFINA ROM SRL Total Silver anodes ABB 1,164, % 6 ABB AS Semi-products 1,142, % 7 UMEB Total Plastic parts ABB +Internal 1,125, % 8 TE CONNECTIVITY SOLUTIONS GmbH Total Plastic parts ABB 922, % 9 BASF SE Total Plastics ABB 474, % 10 BAMESA OTEL Total Zinc-coated sheets 452, % 11 VAMP-TECH spa Total Service provision 393, % 12 POLYNT SPA SOCIO UNICO Total Plastic parts ABB 314, % 13 EWES STALFJADER AB Total Special arches ABB 176, % 14 ENGIE ROMANIA Total Utilities 154, % 15 SODEXO PASS ROMANIA Total Service provision 133, % 16 BROADHURST INDUSTRIAL MANAGEMENT Total Service provision 120, % 17 OMV PETROM MARKETING Total Fuel 79, % 18 RAINBOW MARKETING & CONSULTING Total Marketing advertising 66, % 19 COLOR METAL SRL Total Copper sheets, cut plates 52, % 20 INDUSTRIALCHIM Total Chemical materials 41, % 21 KLG EUROPE LOGISTICS Total International transportation 18, % 22 TOTAL PURCHASES ,928, % National production covers approximately 62% of the necessary raw materials and materials, and the remaining 38% purchases were imports.

17 The behavior of Romanian manufacturers that compete with S.C.Electroaparataj S.A. is not excessively aggressive, and the circumstances are as follows: - S.C.Electroaparataj S.A. is the only Romanian manufacturer of low-voltage electrical equipment for industrial use to provides a complete range of products. Nevertheless, it covers only 15 17% of the internal market; - In the field of installation equipment, the most important competitors on the internal market are: SIEMENS, ELMARK Group, EATON Electric, ABB, - On the external market, the competitors are LINASET CEHIA, companies based in UKRAINE for metallic structures, and companies based in Bulgaria for electrical components, and these are becoming more and more aggressive. Chinese products are becoming more and more competitive. The market for the products of S.C.ELECTROAPARATAJ S.A is characterized by a significant dependency on the ABB Group Assessment of human resources aspects The consolidated average number of the company employees on December 31, 2016 was 99. Their distribution by categories is: No. of employees Total salary costs MANAGEMENT & MIDDLE MANAGEMENT 7 240,514 EMPLOYEES DIRECTLY INVOLVED IN THE MANUFACTURING PROCESS ,156 EMPLOYEES INDIRECTLY INVOLVED IN THE MANUFACTURING PROCESS ,502 TESA EMPLOYEES , ,946,689 Two unions operate within the company: the Electroaparataj Independent Free Union and the Solidarity Union within SC Electroaparataj SA, the Targoviste Branch. There have been no conflicts between the managers and the employees. No events that would affect the liquidity of the company occurred during the reporting period, nor are there any such events likely to occur in the future Environmental impact The company operates based on an ISO 14001/1997 environmental management system. Due to its specificity, the only activity likely to affect the environment is the coating activity (galvanization, phosphating, painting). The company has modernized the neutralization station according to legal requirements, and contracted the periodical analysis of waste water and air, to ensure the compliance with all the environment requirements in force. No dispute regarding the compliance with the environment legislation, nor is there any dispute likely to arise in the future Assessment of the research & development activity The expenses in the research & development field represented 0.01% of the turnover Assessment of the company s risk management activities Electroaparataj SA operates on several market segments subject to various constraints: - External market incurs currency risk. Electroaparataj implements a natural hedging policy, increasing the import supply rate to mitigate this risk. However, as salaries and utilities expenses are expressed in RON, their increase affects the profitability of the company.

18 - In 2016, autonomous financing and avoiding financial blockages was only possible by increasing the efficiency of the working capital and ensuring a balance between collections and payments Long-term prospects for the company activity In 2016, the consolidated turnover of RON 16,586,506 increased by 23.39% compared to 2015, when it was RON 13,441,486. The budgeted turnover for 2017, higher than in 2016, was based on estimated orders received from its main clients. The sales of the company will be positively influenced also due to the extension of the range and order volumes for new products from one of its major clients, namely ABB Norway, through its Bulgarian plant. 2. TANGIBLE COMPANY ASSETS 2.1. To carry out its main activity (described under section 1.1.a), the company has production facilities located in Bucharest location 44 Timisoara Bd. and Targoviste 121 Calea Campulung A significant part of the company machinery and equipment was purchased between , which means that their wear and tear is around 65%. The wear and tear varies; in some sectors it is higher (the Mechanical Processing sector), while in others it is lower, due to machinery renewal through the purchase of new machinery between , and (Warehouses sector, Transportation sector, Galvanization sector, Painting, Metallic Structures) The buildings and some of the fittings are not owned by the company. No dispute regarding the ownership over the company assets. 3. MARKET OF THE SECURITIES ISSUED BY THE COMPANY 3.1. The shares of S.C.Electroaparataj S.A. are negotiated starting with 1997 at the Bucharest Stock Exchange. Following successive divisions, the company s right to trade was suspended in October Trading was resumed in The shareholding structure as of December 31, 2015 is shown in the annexed table. 4. COMPANY MANAGEMENT As of January 01, 2016, the company is managed by a Board of Directors with the following members: No. Name Since: Qualification / Experience Position 1 SC BROADHURST INDUSTRIAL MANAGEMENT SRL by permanent representative Mr. Adrian Ioan RUS 2003 MBA/Engineer Chairman 2 ADITEK TECHNOLOGY Member SRL by Mr. Adrian PREDA 3 TWEEN ENGINEERING Member PREVIEW by Mr. Dan MACANEATA There are no agreements, understandings or family ties between the company managers, nor are there any other persons that could have influenced the appointment of the directors. There were no transactions concluded between the company managers and S.C. Electroaparataj S.A. in The executive managers of the company in 2016 were as follows:

19 No. Name Position Period 1 Gheorghe Chitu General Manager Irimia Lucian Financial Manager Nicu Doina Quality-Environmental Manager BIM Antoniu Alexandrescu Design and Research Manager Tunsoiu Cristina Executive Manager Targoviste Business Unit All the executive managers were appointed for unlimited periods. There are no agreements, understandings or family ties between the executive managers of S.C.Electroaparataj S.A. nor are there any other persons that could have influenced the appointment of the directors. Executive managers participation in the share capital of the company: NA During the last five years, no disputes or administrative procedures involving the managers or the executive managers of S.C.Electroaparataj S.A. took place. 5. FINANCIAL-ACCOUNTING ANALYSIS IFRS general framework SC ELECTROAPARATAJ SA applies the International Financial Reporting Standards, hereinafter referred to as IFRS, and their accompanying interpretations and norms issued by the International Accounting Standards Board (IASB) They are the standards implemented according to the procedure provided by (EC) Regulation no. 1606/2002 of the European Parliament and of Council of July 19, 2002 on the application of international accounting standards. Legal framework The annual financial statements drawn up according to IFRS are exclusively meant to be used by the said entities, their shareholders and CNVM. OMPF no. 2844/2016 for the approval of the Accounting Regulations according to the International Financial Reporting Standards. The table below shows the main financial-accounting data of financial year 2016, compared to 2015:

20 A. CONSOLIDATED FINANCIAL POSITION STATEMENT FOR THE FINANCIAL YEAR CONCLUDED ON DECEMBER 31, 2016 Note s 31/12/ /12/201 6 RON RON 1) Intangible assets ) Tangible assets 14 1,606,773 1,341,576 3) Financial assets (excluding the values from sections (5), (6) and (7)) 13 44,207 44,207 Total assets 1,650,980 1,385,783 4) Inventory, net value 19 7,338,481 9,570,722 5) Trade receivables and other similar receivables 10 5,289,705 5,623,194 6) Cash and cash equivalents 21 1,894,593 1,833,397 8) Other short-term investments 21 19, ) Deferred receivables and expenses, net value 20 45,892 4,826 Total circulating assets 14,588, ,032,20 3 TOTAL ASSETS 16,239, ,417, ) Trade debts and other similar debts 18 2,517,332 3,382,164 11) Deferred provisions and revenues , ,531 12) Financial debts (excluding the values listed under let. (13) and (14) ) Debts and receivables for the current tax, according to IAS 12 "Income tax" ) Receivables related to the deferred tax, according to IAS 12 "Income tax" TOTAL DEBTS 2,805,863 3,670,695 15) Share capital 26 4,667,689 4,667,689 16) Capital premium 3,520,071 3,520,071 17) Reassessment reserves 3,430,621 3,430,621 18) Other reserves 18,844, ,844, ) Consolidated reserves 414, ,019 20) Bills of transfers to capital holders 1,003,079 1,003,079 21) Carried forward loss 16,835, ,576, ) Current financial year result 373,440 1,421,126 Equity assignable to parent company owners 13,412, ,725, ) Non-controlling interests 21,658 22,058 TOTAL EQUITY 13,433, ,747,29 2 TOTAL DEBTS AND EQUITY 16,239, ,417,98 7